1.09 How Bitcoin price is defined
This lesson helps you understand what determines the price of Bitcoin.
Cryptocurrency headlines are filled with the regular ups and downs in Bitcoin’s prices. While the value of Bitcoin has substantially increased since its creation, it goes without saying that it has had its fair share of bumps along the way. However, what actually determines the price of Bitcoin? What factors are responsible for the change?
This lesson helps you understand what determines the price of Bitcoin.
- Why does Bitcoin’s price change?
- How does the limited supply of Bitcoin influence its price?
- What factors determine the price of Bitcoin?
Why does Bitcoin’s price change?
The simple answer to this question lies in basic economics i.e., scarcity, utility, supply, and demand. Bitcoin’s price is subjected to the rules of supply and demand.
When there is more demand and less supply, the price increases. Alternatively, when the supply is more and there is no demand, the price decreases. This is one of the primary differences between Bitcoin and fiat currencies. While the government controls the price in fiat currency, the price of Bitcoin completely depends on the supply/demand economics.
If something is rare and useful to the people, it is said to be ‘valuable’. If we take gold, for example, it is rare and hard to find. At the same time, it presents a use case in the form of jewelry and as an investment instrument.
Bitcoin is similar to other commodities like gold and oil. Its price is established by how much someone is willing to pay for it. So, the price changes from time to time like the prices of stocks, oil, and gold.
How does the limited supply of Bitcoin influence its price?
The supply of Bitcoin is limited to 21 million. Its scarcity has been transparent since its creation. The number of Bitcoins created will decrease over time reducing its supply in the market.
In addition to the increasing demand, Bitcoin’s scarcity is one of the factors that has impacted its price over the last decade.
What determines the price of Bitcoin?
As we mentioned earlier, the market determines the price of Bitcoin following rules of supply and demand. The concept is similar to how the price of a secondhand car or a grain of gold is deduced.
The ongoing interaction or negotiation between buyers and sellers who are trading with each other determines the price of Bitcoin. It also depends on how much buyers are willing to pay for the ‘future value’ of the bitcoin.
If more people believe that the price of something will increase in the future, they are likely to pay more for it. If people do not believe in the asset and have fear, uncertainty, and doubt (FUD) about it, people pay less or do not consider buying it. As a result, its price goes down.
The mainstream adoption of Bitcoin and its technology has significantly increased. As more people are optimistic about the future of Bitcoin and are willing to pay more, its value is increasing.
However, there are instances where the Bitcoin price goes down. When there is any political pressure, technical failures, or any negative campaigns on social media, people are likely to be uncertain about the future of Bitcoin. For instance, in May 2021, Elon Musk tweeted that its company Tesla would start to accept Bitcoin after miners use more renewable energy. The statement by Elon Musk caused a 15% drop in Bitcoin’s price.
Despite all the factors, one thing is for sure: The more people adopt Bitcoin, the greater will be the increase in its price.
This material does not constitute investment advice, nor is it an offer or solicitation to purchase any cryptocurrency assets.
This material is for general informational and educational purposes only and, to that extent, makes no warranty as to, nor should it be construed as such, regarding the reliability, accuracy, completeness or correctness of the materials or opinions contained herein.
Certain statements in this educational material may relate to future expectations that are based on our current views and assumptions and involve uncertainties that could cause actual results, performance or events to differ from those statements.
BB Trade Estonia OU and its representatives and those working directly or indirectly with BB Trade Estonia OU do not accept any liability arising from this article.
Please note that investing in cryptocurrency assets carries risks in addition to the opportunities described above.
4. 06 Travel Rule
Travel rule is a rule well known from the traditional banking sector, which states that all funds sent from one ...
4.05 Crypto taxation in Poland
Every year in Poland, more and more people are investing in cryptocurrencies. This involves, among other things, ...
4.03 DLT Pilot Regime
The Regulation of the European Parliament and of the Council on a pilot regime for market infrastructures based ...
4.02 Digital Operational Resilience Act (DORA)
In this lesson you will learn more about the Digital Operational Resilience Act (DORA), which as a part of ...
4.01 Markets in Crypto Assets (MiCA)
In this lesson you will learn more about MiCA, which aims to be the first comprehensive law regulating ...
2.04 Understanding market capitalization
This lesson centers on understanding cryptocurrency market capitalization.
2.01 Why to invest in cryptocurrencies
This lesson explains why cryptocurrencies might be a good asset to include in your investment portfolio.
1.08 What is Bitcoin?
In this lesson, we dig deep into the roots of the crypto and blockchain tree - Bitcoin.
1.10 Sending and receiving Bitcoin
In this lesson, we explain how to send and receive Bitcoins.
1.11 What is Bitcoin halving?
This lesson takes you through the concept of Bitcoin halving.
1.12 Understanding Bitcoin nodes
This lesson explains what a Bitcoin node is and the different types of nodes.
1.13 Can Bitcoin network be hacked?
In this lesson, we discuss why it is nearly impossible to hack the Bitcoin blockchain.
1.19 Bitcoin mining difficulty & pre-mined coins
This lesson covers two concepts - Bitcoin mining difficulty and pre-mined coins.
1.18 How do mining pools work?
This lesson explains the function of mining pools in detail.
1.17 What is mining in blockchain?
This lesson will explain the basics of the cryptocurrency mining process.
1.04 Cryptocurrency coins vs tokens: what is the difference?
This lesson explains the differences between crypto coins and tokens.
1.03 Cryptocurrencies vs fiat money: similarities and differences
In this lesson, you will understand both the similarities and the differences between cryptocurrencies and fiat ...
1.02 What are cryptocurrencies?
In this lesson, you will learn about the basics of cryptocurrencies.
1.01 This is why you can no longer ignore cryptocurrencies
Here are a few reasons for you to start with the zondacrypto Academy and take your crypto knowledge to the next ...
Zonda is now zondacrypto!
As the exchange continues to evolve and grow, we're thrilled to announce that we're rebranding and changing our name to better reflect our vision and values. We're still the same team you know and trust, but with a fresh new name that captures our spirit of innovation and customer-centric approach.
Some things may look a bit different but don’t worry - all operations remain the same and your login details work as usual.
Stay tuned for more updates and exciting changes as we embark on this new chapter together. Thank you for your continued support and loyalty!